How is working capital calculated?

Working capital is calculated by subtracting total current liabilities from total current assets. This calculation provides a measure of a company's short-term financial health and operational efficiency.

When you have a positive working capital, it indicates that the company has enough assets to cover its short-term liabilities, which is essential for maintaining daily operations and ensuring financial stability. Conversely, negative working capital can signal potential financial troubles, as it means the company may face challenges meeting its short-term obligations.

Understanding this calculation is crucial for evaluating a business's liquidity position, and it plays a significant role in financial analysis and decision-making. The other options presented do not represent the correct method for calculating working capital, as they either add current liabilities to assets or misrepresent the relationships between different financial components.